Spain downgrade piles pressure on EU leaders

The latest downgrade of Spain’s credit rating puts more pressure on European leaders to make convincing progress on solving the region’s debt crisis at next weekend’s summit.

The Spanish rating cut highlights the threat of contagion to other euro zone countries from debt-stricken Greece.

Moody’s is the third of the major agencies to act in recent weeks lowering its rating below Standard & Poor’s and Fitch.

Economist Juan Maria Concha explained: “In the financial system the most important thing is if you don’t have money, it’s the most important to gain the investors confidence. If there are institutions like the rating agencies and what they do means investors don’t trust you, things get very complicated. What will happen in this case is that the country’s public debt will grow significantly.”

Moody’s just this week warned France that its triple-A rating could come under pressure. Spain’s bond rating has been cut by Moody’s to A1, from Aa2 – a two notch downgrade. That follows its recent downgrade of Italy’s sovereign rating, to A2 with a negative outlook.

The warning to France puts more pressure specifically on President Nicolas Sarkozy and undermines his

ability to play a leading role, together with Germany, in fixing the debt crisis

France is a key player in bailing out struggling euro zone members and if its financial standing is weakened that threatens its ability to deliver on its commitments.